5 Employment Law Tips for Startups

Just started your own business and thinking of hiring your very first employee? Taking on a new employee (what more your first!) is a serious obligation and shouldn’t be taken lightly. Here are 5 tips on the basics of Malaysian employment law to help you get started:

Tip #1: Know the bare minimum, at least.

It’s not realistic to expect startup founders or business owners to be intrinsically familiar with every aspect of employment law. However, you should, at the very least, be aware of the basics of employee rights and benefits.

In Malaysia, the Employment Act 1955 (“Act”) sets out the minimum entitlements of employees. However, the Act only applies to certain employees (mainly, those engaged in manual labour or those whose wages do not exceed RM2,000 a month). Other employees are governed by their respective employment contracts.

Hiring an employee may also come with other obligations, such as registering with the Employees Provident Fund and/or the Social Security Organisation. There is also minimum wage requirements in Malaysia, which varies depending on how your workers are paid and where they are based.

Consult a lawyer if you are not aware of your obligations, or if you are uncertain about what you can or cannot do with your employees.

Tip #2: Post-employment non-competition clauses are not enforceable in Malaysia.

Non-competition clauses are a common feature in employment contracts, although in Malaysia they are not enforceable against employees if the non-competition clause covers a post-employment period. Malaysian courts have found that such non-competition clauses are void for being in restraint of trade. You cannot legally prevent your ex-employee for working with your competitor, although you can prevent them from using your confidential information if they join a competitor.

Despite the unenforceability of the non-competition clauses, most employers include them in their contracts either due to ignorance of the law, or as a deterrent effect. If you insist on keeping a non-competition clause, you should also include a severability clause. If this sounds too complicated for you, make sure you let a lawyer review your agreements.

Tip #3: Have some good employment policies.

The idea of creating comprehensive employment policies as a startup may seem counter-productive since you are unlikely to have a large workforce at the beginning. That being said, having good policies in place from the start can save you a lot of heartbreak and implementation issues in the long run.

For example: while the law does not expressly require employers to have an anti-sexual harassment policy, the Act generally requires all employers to inquire into any complaint of sexual harassment. Since the inquiry is mandatory, it makes good sense to have a policy and procedure to deal with any potential complaints.

There are differences between shareholders, directors, employees, independent contractors and partners. These words are not to be used interchangeably. A shareholder isn’t necessarily an employee even though he may be helping out with the company’s operations. Likewise, there is a difference between a “director” of a company in a legal sense, and a salaried position that uses the word “director” (eg: Director of Marketing). Using the words and titles interchangeably could have possible legal implications, so make sure you get proper advice before attempting to establish any new employment relationship. After some consideration, you may not even want to hire an employee – for example, the job could in fact be better done by an independent contractor. Take note: calling someone an independent contractor on its own doesn’t remove employment liabilities – in the event of a dispute, the Court will look at the arrangement as a whole.

Tip #5: Protect Your Assets

Your business assets aren’t limited to just tangible objects like your furniture, computers, or property. A business’ key assets includes its confidential information, trade secrets, intellectual property, customers, and employees. Although you may not necessarily be able to restrain your ex-employees from working with your competitors (see Tip #2), you may still make contractual measures to prevent: (a) poaching of employees and customers; (b) unauthorised use and disclosure of confidential information; and (c) unlawful use of your intellectual property like trade marks and copyright.

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